51 / 111
50
CRITICAL ACCOUNTING ESTIMATES
Exploration and development costs
Exploration costs are expensed as incurred. When it is determined that a mining deposit can be
economically and legally extracted or produced based on established proven and probable reserves, development
costs related to such reserves and incurred after such determination will be considered for capitalization. The
establishment of proven and probable reserves is based on results of feasibility studies that indicate whether a
property is economically feasible. Upon commencement of commercial production, capitalized costs will be
transferred to the appropriate asset category and amortized over their estimated useful lives. Capitalized costs, net
of salvage values, relating to a deposit that is abandoned or considered uneconomic for the foreseeable future, will
be written off.
Stock-based compensation
We account for share-based compensation under the provisions of Financial Accounting Standards Board
(“FASB”) Accounting Standards Certification (“ASC”) 718, “Compensation – Stock Compensation.” Under the fair
value recognition provisions, stock-based compensation expense is measured at the grant date for all stock-based
awards to employees and directors and is recognized as an expense over the requisite service period, which is
generally the vesting period. The Black-Scholes option valuation model is used to calculate fair value.
We account for stock compensation arrangements with non-employees in accordance with ASC 718 and
ASC 505-15, “Equity,” which require that such equity instruments are recorded at their fair value on the
measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the
underlying equity instruments vest. Non-employee stock-based compensation charges are amortized over the
vesting period on a straight-line basis. For stock options granted to non-employees, the fair value of the stock
options is also estimated using a Black-Scholes valuation model.
Asset retirement obligations
Our mining and exploration activities are subject to various laws and regulations, including legal and
contractual obligations to reclaim, remediate, or otherwise restore properties at the time the property is removed
from service. Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value.
The reclamation obligation is based on when spending for an existing disturbance will occur. We reclaim the
disturbance from our exploration programs on an ongoing basis and, therefore, the portion of our asset retirement
obligation corresponding to our exploration programs will be settled in the near term and is classified as a current
liability. The remaining reclamation associated with environmental monitoring programs is classified as a long-term
liability; however, because we have not declared proven and probable reserves as defined by SEC Industry Guide 7,
the timing of these reclamation activities is uncertain. The estimated fair value of the outstanding liability at the end
of the period approximates the cost of the asset retirement obligation. For exploration stage properties that do not
qualify for asset capitalization, the costs associated with the obligation are charged to operations. For development
and production stage properties, the costs will be added to the capitalized costs of the property and amortized using
the units-of-production method. We review, on a quarterly basis, unless otherwise deemed necessary, the asset
retirement obligation in connection with the Bear Lodge Property.
Asset retirement obligations are secured by surety bonds held for the benefit of the state of Wyoming in
amounts determined by applicable federal and state regulatory agencies.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk.
Market risk is the risk that the fair value of future cash flows of a financial instrument will
fluctuate because of changes in market prices. Our market risk is comprised of various types of risk: interest rate
risk, foreign currency exchange rate risk, commodity price risk and other price risk.